Accounts Receivable Financing is a type of asset-financing arrangement in which a company uses its receivables — outstanding invoices or money owed by customers – to receive funds. Accounts receivables financing involves borrowing against your receivables or selling your receivables to a company that will pay you an amount equivalent to the invoice amount due you, less a discount. This type of financing helps companies free up capital that is stuck in unpaid debts.
Selling your Receivables
An accounts receivable Factoring Company will advance you up to 100% of the value of a given outstanding invoice, but they’ll charge a fee from the value each week it takes your customers to pay the invoice in full. It is a process of selling your rights to collect an invoice. The factor/invoice buyer pays a high percentage of the invoice face value to you on day one. Upon collection, the factor funds the balance of the invoice value less their fees for service.
Accounts Receivable Financing
Basically this is a type of loan you can get based on outstanding receivables. There are Account Receivable Companies to contact. If you are a little short of cash at the end of the month and you have several invoices sent out to clients, but there is no guarantee that they will pay by the time you bills are due. You can borrow against these receivables.
So with these types of services, you can either borrow against the money you expect to come in soon, or sell the invoice itself at a discount.
Benefits of Account Receivable Financing or Factoring…
Poor cash flow can impact the overall viability of your business. According to a study from US Bank, 82% of business failures can be traced back to problems with cash flow. The Account Receivable Financing can be a solution that could help you with cash flow issues and get the money from delayed invoice payment sooner. It is particularly useful for businesses that get paid large invoices by clients that may pay slow for one reason or another. Yet your business still needs to meet payroll, inventory and business expenses. Getting financing takes that worry out of the equation for small businesses. Factoring, where you actually sell the invoice and the factor takes over collection, can take away the headache of chasing down payment from clients.
How Much Does invoice Factoring Cost?
Just like any other type of business lending service, there are fees associated with invoice factoring. Factoring rates are calculated based on a number of factors…
- The volume of the monthly receivables you wish to factor
- The average size of each invoice you wish to factor
- Your industry
- The creditworthiness of your customers
- The length of time it takes your customers to pay
Average factoring costs fall between 1% and 5% depending on the factors above.
How Much Does Invoice Financing Cost?
Accounts receivable (A/R) financing companies can provide fast, affordable funding. The loan can smooth out a small business’s cash flow or provide access to short-term working capital.
A/R financing is based on…
- Size of company
- Credit score
- An individual or group.
The financing Company is great for businesses that want to borrow up to $100,000 without the hassle of selling their invoices and with a 100% advance rate, with discount rates starting as low as 0.5% per week. Most companies can integrate with more than a dozen accounting software programs, making it easy to provide your information.
Is Account Receivables Financing or Factoring Right for Your Business?
You need to ask yourself a few questions. Is it a temporary problem? Is it something bigger? Are you just trying to buy time to hold off the inevitable? How much are you willing to pay for getting access to money faster? On the other hand it might be well worth it if it keeps your cash flow steady and uninterrupted. Your accountant can help you understand the overall financial impact on your company.
Lendio’s Account Receivables Financing
Stop feeling broke while you’re waiting for those Net-30 receivables to roll in. You can use accounts receivable financing to get an advance from a lender on the money you’re owed for completed services. Bonus fact: the rates are typically lower than they are for a cash advance.
Loan Amount: Up to 80% of Accounts Receivable
Term: Up to 1 Year
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